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Why Invest & Buy Silver - Understand Your Investment
Understanding Your Investment in Silver - Why Silver is one of the best investments you will see in your lifetime:
Before you start investing in silver, you need to understand WHY you are investing in silver, so when the spot price of silver changes from day to day, whether up or down, you can remain calm because you know you are investing in something real that will soon realize its true value in the free market. With an understanding will come true appreciation of silver as an investment and precious metal.
After reading why silver is such a great investment, please continue to read some other key articles on silver investing.
Why Silver is one of the best investments you will see in your lifetime:
In order to fully understand investing in silver, you have to first look at the history of money, and then where silver comes in. For over 5,000 years of recorded human history, silver and gold has been used as a form of currency. In over hundreds of civilizations and nations in every part of the globe. This is all recorded fact and it is no coincidence; gold and silver are REAL MONEY for a REAL REASON.
Most believe believe money and currency are the same thing. They are not.
Let's look at the difference between currency and money
According to the Webster's dictionary three criteria must be met for something to be considered money:
1. It must be an accepted medium of exchange.
2. It must be a unit of account.
3. It must be a store of value.
According to Webster's dictionary only ONE criteria needs to be met for something to be considered currency:
1. It must be accepted as a medium of exchange.
We can have all kinds of currencies, and the world HAS. People used to use shells, spices, cowhides, rice, bread, and guess what..paper as currency. All of these things can be currency but none of them are REAL MONEY.
Now that we understand the difference between money and currency, ask yourself... are the bills in your wallet money or currency? Currency.
In the United States people had hard money, and soft money. But now we have no money. Why?
Silver coins that were used in circulation are hard assets with real universal intrinsic value. We also had paper certificates backed by and redeemable for gold and silver - real money. This is considered soft money. Another example of soft money is the Greenback. Greenbacks were only issued by the Treasury Department at the request of then President Lincoln during the first American civil war. They were backed by silver and were extinguished after the war was over.
Where is the world today? What is currently in circulation as legal tender is neither hard money nor soft money. It ISN'T MONEY. All we have today is currency.
So to recap, real money has all of the features of currency, which includes being a medium of exchange and typically a unit of account, but also has to be a store of value. Being a good store of value is something that paper currencies cannot accomplish because its intrinsic value is that of paper. It grows on trees and you can print more and more of it!
Fiat = Currency but does not have the necessary attributes of real money. Gold & Silver qualify as both money and currency.
To serve its function as CURRENCY, an item should have the following features:
It has to be medium of exchange:
* It should have liquidity, and be easily tradeable. Paper currency meets this criteria.
* It should be easily transportable; precious metals have a high value to weight ratio. This is why oil, coal, or water are not suitable as money even though they are valuable. For example, a small 1 oz. Gold coin stores about $1500 worth of value even at today's low prices. Currency backed by gold in the form of paper is easily transportable. Paper currency meets this criteria.
* It should be durable. Gold or silver coins are often mixed with 10% copper to improve durability, and coins are made with ridges around the rim to prevent coin shaving or debasement. We can use paper money for a long time, moving from wallet to wallet. Paper currency is not perfect in durability but it works.
It has to be a unit of account:
* It should be divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again, with a low percentage cost. Paper currency meets this criteria as we can convert $100 bills into 10 $10 bills.
* It should be fungible: that is, one unit or piece must be equivalent to another, which is why diamonds, works of art or real estate are not suitable as money. Paper currency meets this criteria ($100 bill here = $100 bill there).
* It must be a specific weight, or measure, or size to be verifiably countable. Paper currency meets this criteria.
To serve as MONEY, an item has to be all of the above, PLUS it has to be a store of value. THIS IS THE DIFFERENCE BETWEEN MONEY & CURRENCY. Paper/fiat money can be used as currency, or a money representative, but not the money itself.
* It should be long lasting, durable, it must not be perishable or subject to decay. This is why food items, expensive spices, or even fine silks or oriental rugs, are not generally suitable as money.
* It should have a stable value. There is a limited supply of gold and silver on earth. You cannot PRINT more of it, like you can with fiat currency. This is the inherent problem with paper money; the issuers are always tempted to print more and because of that paper money does not have long term stable value. Paper money's intrinsic value is its value as paper; and everything returns to its intrinsic value.
* It should be difficult to counterfeit, and the genuine must be easily recognizable.
So we can see why civilization after civilization chose to use precious metals as real money and also as currency, and how time after time paper currencies were introduced but all failed in time.
In 1971, the United States cut its final tie to gold backed currency, and since then it has been dominated by paper currency. The problem is that paper currency, because it has no store of value by itself, obtains its purchasing power from nothing more than confidence in the issuer i.e. the stability of its political and economic system, relationships with other economies, etc. The U.S. is in trillions of dollars in debt and the graph does not look like it's going to get any better. How confident are you in the issuer of your "money"?
In order to preserve purchasing power, savings must be stored in a form of money that retains its value over time. What good are savings if the currency you save gets inflated and loses purchasing power year after year? Gold and silver are recognized around the world as the forms of money that cannot be created out of nothing. Unlike fiat currencies, which can easily have their purchasing power destroyed through inflation, these precious metals remain the most reliable forms of money yesterday, and today.
Silver and gold are physical possessions with real intrinsic value and scarcity attached to it. It is HARD WORK to get gold and silver out of the ground. It is easy to press a "Print" button, or type 6-7 digits into your banking computer to create "money" out of nearly nothing. Precious metals have seen tremendous upward spikes in the past few years; there is no coincidence that this is all when many worldwide economies are suffering from their unstable debt-based fiat currencies and fiscal policies. Big countries and world powers like China and India have been selling off their U.S. Dollars and bonds as fast as they can .. and what are they buying instead? You guessed it, gold and silver.
A common misconception is that when it comes to precious metal investing gold is the only great option. The reality is, due to its industrial value and its demonetization as common man's money (gold is too expensive to be used for everyday transactions; this is why people elect to use silver as well) silver is a better investment today than gold (though gold is also a great choice!). This will be discussed in further detail in Why Silver over Gold.
For the past couple hundreds of years, silver has been used primarily as an industrial metal and not a precious metal. Unlike most industrial metals like steel and copper which are used in large amounts and can be recycled, silver is used in such minute quantities that it is rare recycled when it is used industrially. As our world advances technologically, more and more uses for silver will be seen and its value as a industrial metal will appreciate even higher. At today's spot prices, it simply isn't worth recycling silver. You might recover like 23 cents worth of recycle-able silver after spending an hour or two. This is different with gold, because gold is valued at over $1500 an ounce even in today's market. We will see the day when silver is truly appreciated in the free market for what it is worth, and prices will rise to a level where it becomes worthwhile to recycle silver.
Silver is a very widely used industrial metal and has more than thousands and thousand of uses. Because of silver's unique properties and its priceless value to many industries, its price is inelastic. What this means is it doesn't change much in response to changes in demand. Most commodities have self correcting price mechanisms. For example, as the price of a commodity goes up people begin seeking alternatives or substitutes. This causes a correction in demand and thus price. For silver there are no substitutes for the majority of its applications.
What this also means is as silver becomes harder and harder to acquire, big industrial powers will be buying it out to save on costs later on when they need to buy silver at higher prices. These big companies are aware of their need for silver; these are major industry players that will drive the price of silver up in a free market.
- Silver Jewelry
- Silverware and Table Settings
- Brazing and Soldering
- Medical Applications
- Mirrors & Coatings
- Solar Energy
- Water Purification
- and thousands more!
The demand for physical silver is up tremendously in the past few years, but more important it is continuing to rise and it WILL CONTINUE to rise
. In a market of 800 million ounces, the Chinese who used to export 100 million ounces a year are not important over a 100 million ounces a year. That's a huge shift in just demand from China. Wait til the major buyers really get into the market. The physical market is already suffering from difficulties in meeting demand. Eric Sprott, who started his own physical silver trust has difficulty acquiring just 10-15 million ounces. This is in a market that trades 20-30 times this amount EVERY DAY. You can see from these numbers alone the discrepancy between the physical market and the paper market for silver.
What this means is there is an abundance of paper silver (which will eventually collapse when all that paper comes back chasing the same amount of physical silver) and that there is a shortage of physical silver. One huge sign of this is that the silver market is currently in backwardation, which means it costs more to acquire the item now than it does to get it later.
Backwardation rarely occurs in these metals markets; the opposite condition—contango—usually is in effect, as buyers and sellers must factor in the cost of storage and insurance for deliverable stocks. The supply of silver in warehouses like Comex's have been steadily declining, and demand is rising at the same time. These two things spell one result - silver prices MUST go higher.
Ratio Between Gold And Silver:
big difference between gold and silver is the price per ounce for each
metal. For gold silver ratio, a high ratio indicates silver is
undervalued in comparison to gold. Price of silver and gold fluctuate
ever day and mainly depend on the market fluctuations.
Silver and gold are precious metals that can be used for investment. Silver bars & coins are well known as bullion and are best used as standards in metal investments.
Silver used to trade on a 15 to 1 or 16 to 1 ratio with gold. It was trading at almost 60-70 to 1 with gold a while ago but now that has decreased to about 40 to 1. This trend is one of the reasons why dollar for dollar silver is a better investment than gold today. Silver should close the gap with gold to at least its historic ratio of 16 to 1, but this time around there is a lot more industrial demand for silver that is causing the worldwide supply of silver to constantly shrink (because silver is used up and discarded while gold is primarily held as wealth and recycled when it is used). We have much more industrial applications for silver now than before and they same cannot be said for gold.
The federal reserve and most central banks around the world are continuing to print money and sell debt as their means to their money problems. The more money there is out there chasing the same amount of goods and services leads to inflation. You cannot print more bills and expect their value to remain the same. Silver and gold are the best protections against inflation (QE3, QE4, QE5......QE9999).
Here are some great videos on why gold and silver are the best invesments you can make today and why their value will continue to rise:
This movie by Mike Maloney (Thank you for your knowledge!) is a full length movie on why gold and silver are the investments of our time. He also discusses how to take advantage of the wealth transfer that comes with wealth cycles. Time the top of the silver cycle with the bottom of the real estate cycle. Invest in silver now as we ride this bull market to its peak while the housing market drops to its bottom. At the time you trade your silver for real estate and then, since you buy real estate at its bottom, watch your houses rise in value.
After reading why silver is such a great investment, please continue to read some other key articles on silver investing.
- Why Buy Silver - Understanding Investing in Silver